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[op-ed snap] A troubling snapshot of Indian manufacturing

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Mains Paper 3: Economy | Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth

Q.) How can the government remove barriers to growth in the manufacturing sector?

From UPSC perspective, the following things are important:

Prelims level: Particulars of the report

Mains level: The article effectively explains the issues related to employment and productivity in the Manufacturing Sector.



  1. The article talks about the condition of Indian Manufacturing Sector and the recently released Ease Of Doing Business report by NITI Aayog and the IDFC Institute

Main issue with enterprises in Manufacturing Sector

  1. Enterprises in this sector have a growth problem
  2. Majority of these enterprises are dwarfs, unable to increase the share of Manufacturing sector in the economy
  3. These dwarfs dominate the sector numbers-wise
  4. They suffer from low productivity given that their small size prevents them from achieving economies of scale, among other disadvantages
  5. However, they employ a huge chunk of the labour force

Issues with Jobs, created by Manufacturing Sector

  1. The jobs created by dwarf enterprises are low-paying ones
  2. The wage spread between small and large enterprises is a disquieting 80%
  3. Compare this to China, where the spread is just about half that

What should be done to counter the problems?

  1. Improving physical infrastructure is essential
  2. This ranges from transport systems to the power sector
  3. The report by NITI Aayog also mentions the need to improve access to finance for smaller enterprises and making firm entry and exit easier, among other measures

Older Manufacturing firms Vs. Younger Firms

  1.  The report throws up some interesting facts
  2. Most of the young enterprises are located in Maharashtra, Gujarat, Tamil Nadu, Andhra Pradesh and Telangana
  3. Concurrently, unlike in other states, older manufacturing firms in Andhra Pradesh, Telangana, Maharashtra and Gujarat face a lower regulatory burden than younger firms
  4. The latter are thus disadvantaged in the states where they are highly concentrated
  5. It creates a barrier to growth and productivity

The way forward

  1. Political compulsions have often been offered up as an excuse for going slow on reforms related to manufacturing sector
  2. Government should take care of this

Odisha rated as low-growth State

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Mains Paper 3: Economy | Inclusive growth and issues arising from it.

From UPSC perspective, the following things are important:

Prelims level: Particulars of the report

Mains level: ‘Ease of doing business’ is one of the most important priorities of the government.


The NITI Aayog’s ‘Ease of Doing Business Report: An Enterprise Survey of Indian States’

  1. The report has released recently
  2. It points at more issues in setting up new businesses in Odisha compared to other States
  3. The 15-high growth States include Bihar, Uttarakhand, Tripura, Sikkim and Meghalaya
  4. Basis of the report: The NITI Aayog and IDFC Institute, its knowledge partner, have classified States on the basis of their average annual real growth rate
  5. By using State GDP from 2004-05 to 2013-14

Under-employment severe in India: NITI

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Mains Paper 2: Governance | Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

From UPSC perspective, the following things are important:

Prelims level: What is Underemployment?

Mains level: The shows the concerns of NITI Aayog regarding the employment issues in India.



  1. NITI Aayog has said, in its three year agenda that not unemployment but a “severe under-employment” is the main problem facing the country
  2. NITI Aayog has a goal of promoting highly productive and well-paid jobs

What is Underemployment?

  1. Underemployment, or disguised unemployment, refers to a job that is insufficient in some important way for a worker, relative to a standard, which results in the under-utilization of the worker
  2. Examples include holding a part-time job despite desiring full-time work, and overqualification, where the employee has education, experience, or skills beyond the requirements of the job.

Recommendations from the NITI Aayog

  1. The Aayog recommended the creation of a handful of Coastal Employment Zones, which may attract multinational firms in labour-intensive sectors from China to India

Niti Aayog’s Appraisal of the Twelfth Five Year Plan: Low manufacturing growth holds back job creation

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Mains Paper 2: Governance | Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

From the UPSC perspective, the following things are important:

Prelims Level: Not Much

Mains Level: Important suggestion for improving the condition manufacturing sector of Indian Economy. These suggestions are more important because they are from a Report of NITI Aayog.


Issues with Manufacturing sector

  1. According to NITI Aayog’s report, the sector’s growth rate has remained constant for the past 25 years
  2. Whereas countries such as Taiwan and China recorded more than double the rate of expansion in India

Example of other countries

  1. In Taiwan and South Korea in the 1960s and 1970s and in China in the 1980s, 1990s and 2000s, manufacturing grew at rates approaching or exceeding 15 per cent
  2. It lead to transformation of these economies from primarily agrarian and rural character to modern urban ones in around three decades

India’s situation

  1. The fast-growing sectors in India have been automobile and its parts, two-wheelers, machinery, chemicals, petroleum refining, telecommunications, software and pharmaceuticals
  2. None of these sectors employs low-skilled workers in large numbers
  3. As a result, the vast majority of Indian workers remain concentrated in agriculture, unorganised industry or low-paying services

Challenges in front of India

  1. To achieve rapid growth in manufacturing sector
  2. Ensuring healthy growth in labour-intensive sectors such as clothing, leather manufactures, food processing and electronic assembly
  3. Growth in these sectors would help create good jobs for workers with limited skills

Suggestions by the Niti Aayog in its three-year action plan
Suggestions include

  1. Easing entry barriers and reducing duties on synthetic fibres to make India’s apparel industry competitive in global market
  2. Reducing custom duty on gold
  3. Increasing investment in skill training
  4. Expediting creation of integrated mega food parks and lower duties on key inputs of final electronics products

Give tax breaks for digital payments, says Niti Aayog I

  1. What: Niti Aayog has proposed giving tax breaks to consumers and merchants for debit or credit card payments
  2. It has also suggested levying surcharge for cash transactions beyond a set limit to encourage electronic transactions
  3. Reason: Niti Aayog CEO Amitabh Kant pitched for encouraging e-payments for driving online commerce
  4. This would also bring in greater transparency and higher tax collection for the government
  5. In South Korea, the government promoted electronic payments by providing tax breaks on electronic transactions

Give tax breaks for digital payments, says Niti Aayog II

  1. E-commerce: Mr.Kant observed that e-commerce contributed about only 1% to the total retail market as compared to 14% in China
  2. It was pointed out that existing legislation does not recognise e-commerce consumers
  3. Niti Aayog recommended early enactment of Consumer Protection Bill 2005 introduced in Lok Sabha in October 2015
  4. And also updating National Consumer Helpline regularly for e-commerce complaints

Five-year Plans out, 15-year vision soon- II

  1. The current 12th Five-Year Plan will be terminated in the current financial year, 2016-17 in order to facilitate the 15 year vision document
  2. The mid-term appraisal of the 12th Plan is also not done though it was due after the completion of two-and-a- half years
  3. PMO has also instructed NITI Aayog to undertake outcome-based monitoring of all government programmes and ministries on a yearly basis
  4. Aim: Keeping a tab on the progress made and work done

About the National Development Agenda

  1. The agenda will lay down the schemes, programmes and strategies to achieve the long-term vision
  2. It will also deal with issues related to internal security, defence and external affairs (Planning Commission rarely dealt with these issues directly)
  3. Review: After a gap of every three years to ensure that it was aligned with financial needs and requirements
  4. For the first Development Agenda, the review would be done in 2019-20, in line with the termination year of the 14th Finance Commission

Five-year Plans out, 15-year vision soon- I

  1. Vision Doc: Govt has decided to get rid of the five-year plans and replace them with 15-year vision documents
  2. These will be framed keeping in mind the country’s social goals and the sustainable development agenda
  3. The first 15-year vision document will start from 2017-18 & NITI Aayog has been directed to prepare a vision document at the earliest
  4. Also there will be a 7-year National Development Agenda

NITI Aayog plans new planning framework

  1. News: NITI Aayog is working on a sector-based medium-term planning framework
  2. The medium-term growth is dependent on past performance
  3. Purpose: The new planning framework could replace five-year plans, as XII FYP will end in FY 2016-17
  4. Challenge: Long-term growth can only be enhanced by structural reforms and improving the productive capacity of the economy

Plans to revive Investment Commission

  1. Context: Centre is planning to revive Investment Commission
  2. Aim: Arresting India’s falling investment rate
  3. Relevance: Earlier, it functioned under the finance ministry from December 2004 to December 2009
  4. In new form, it could be part of NITI Aayog
  5. Function: To make recommendations to govt on policies and procedures to facilitate investment

NITI Aayog: 2nd regional consultation

  1. Context: 2nd Regional Consultations on Agricultural Development in New Delhi
  2. Held by: NITI Task Force on Agricultural Development under the chairmanship of Vice Chair Arvind Panagariya
  3. Demands: southern states pitched for preparation of a model land leasing act and higher remunerative prices for farmers
  4. Other areas: shared best practices in area of agriculture and water resources; river linking and water conservation and harvesting; emphasis on strengthening of agricultural co-operatives

NITI Aayog wants formula to transfer funds to states

NITI Aayog has called for the creation of an objective and transparent formula to distribute central funds to states under the centrally sponsored schemes (CSS)

  1. This is in line with the recommendation of the sub-group on rationalisation of CSS
  2. State govts should have a broad appreciation of the quantum of Central funds that is committed to them scheme-wise
  3. This helps them to plan better and also ensure speedier execution of CSS
  4. Task of creating the formula has been entrusted to a 3-member committee with the secretary of the nodal ministry implementing the CSS as the chairman
  5. NITI Aayog will give its inputs and recommendations based on consultation with all state governments

NDC to be scrapped, NITI Aayog council likely to get its powers

  1. The Cabinet will take up NDCs closure and pass a resolution for transferring its powers to the Governing Council of the NITI Aayog.
  2. PM will take up the resolution with the CMs at a meeting of the Governing Council of the NITI Aayog.
  3. National Development Council (NDC) was setup in 1952 by an executive order.
  4. It served as the highest decision making authority in the country on development matters.

Let’s know more about NITI Aayog?

  1. Union Government had replaced Planning Commission with a new institution named National Institution for Transforming India (NITI Aayog) on 1 January 2015.
  2. The aim is to foster involvement and participation in economic policy-making process by the State Governments, a “bottom-up” approach to planning.
  3. Noted Economist Arvind Panagariya was appointed Vice Chairman of the NITI Aayog.
  4. Economist Bibek Debroy and former DRDO chief V K Saraswat were appointed as full-time members.

Amitabh Kant appointed CEO of NITI Aayog

Decision in this regard was taken by Appointments Committee of the Cabinet (ACC) headed by Prime Minister Modi in New Delhi.

  1. Senior IAS officer Amitabh Kant has been given additional charge as Chief Executive Officer (CEO) of National Institution for Transforming India (NITI) Aayog.
  2. Mr. Kant’s appointment comes after incumbent NITI Aayog CEO Sindhushree Khullar’s extended tenure is coming on 31st December 2015.
  3. Amitabh Kant is IAS officer of 1980 Batch of Kerala Cadre.
  4. Presently, he is serving as Secretary, Department of Industrial Policy and Promotion (DIPP) and is expected to retire in March 2016.

NITI Aayog panel moots private funding for R&D

A NITI Aayog panel on innovation has recommended that the private sector should help fund R&D, including in research labs at universities and startups.

  1. The panel has also recommended improved tax benefits for investments equivalent to a percentage of corporate profits.
  2. The panel also suggested a ‘Make in Universities’ program which would involve setting up 500 tinkering labs.
  3. It also recommended Grand Prizes approach to finding ultra-low-cost solutions to India’ s most intractable problems.
  4. Incentivised innovation has worked around the world in stimulating innovation.

People’s Planning Campaign and NITI Aayog

  1. Kerala’s People’s Planning Commission (PPC) and the NITI Aayog are similar models of planning.
  2. The PPC was introduced in the mid 1990’s is not fully implemented in Kerala, but fiscal decentralisation is done by PPC while NITI Ayog plays the role of facilitator.

UIDAI shifted to IT ministry from NITI Aayog

  1. Earlier, UIDAI was the part of Planning Commission.
  2. The Unique Identification Authority of India (UIDAI), which issues Aadhaar cards, has been shifted to the administrative control of the ministry of communication and information technology from NITI Aayog.
  3. Move to shift UIDAI from NITI Aayog is taken keeping in mind govt’s ambitious ‘Digital India’ plan as Aadhaar numbers are being linked with several services
  4. Aadhaar is a 12-digit individual identification number issued by UIDAI.

NITI Aayog plans subsidy regime revamp

  1. NITI Aayog proposes to marry data from Aadhaar, the Jan Dhan accounts & the socio economic & caste census to better target subsidies.
  2. The plan has been inspired by the so-called JAM (Jan Dhan, Aadhaar, Mobile) trinity proposed by the finance ministry.
  3. The estimated direct fiscal cost of both central and state government subsidies is about Rs.3.78 trillion, or about 4.2% of GDP.

:( We are working on most probable questions. Do check back this section.

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